Second-class stamp price to soar by 50pc under Royal Mail plans

Royal Mail will increase the price of second class stampsby 50 per cent if it gets the go-ahead.

The State-owned company wants the cost of the stamps to rise from the current 36p to at least 50p.

Regulator Ofcom has been carrying out a consultation aimed at giving greater commercial freedom to Royal Mail, including handing the firm the power to set the price of first class stamps.

Royal Mail said the company can suspend deliveries on health and safety grounds

It is proposing a cap on second class stamps of between 45p and 55p, but Royal Mail has confirmed it wants them to be at the upper end of the scale.

Ofcom said its proposals, announced in October, were aimed at protecting the universal service obligation (USO) under which the Royal Mail has to deliver to any address in the UK for the same price, six days a week.

It has been under pressure in recent years because of falling mail volumes, which has seen the number of letters delivered every day slump by 22 million to 62 million between 2006 and 2010, contributing towards a loss of £120million last year.

Consumers have also switched from first to second class mail - now posted in equal numbers - while stamp prices have lagged behind inflation for almost 20 years.

Soaring: The price of a first class stamp has risen from 27p in 2000 to 46p today

The price of a first class stamp in the UK is among the lowest in Europe at 46p, compared with 69p in Italy, 67p in Denmark and 60p in Greece, while service targets are among the highest, Ofcom pointed out.

The Federation of Small Businesses said it has ‘extreme concerns that the small business community will disproportionately suffer under the new reforms.’

Yesterday Royal Mail insisted it must be able to charge as much as it likes for a first or second class stamp.

In a decision which will trigger outrage among its customers, the State-owned company wrote to Britain’s postal regulator insisting all the current price caps, should be scrapped.

The letter, seen by the Daily Mail, states clearly: ‘Royal Mail does not believe that the case is strong for the imposition of a price cap on any of our products.’

The letter states that, if Ofcom insists on a price cap, that it ‘should be set at the upper end of Ofcom’s proposed range (ie 55p.)’ It went on to say that it believes there is ‘no affordability concern’ for Britain’s cash-strapped households.

‘In the worst case it could result in a financially troubled Royal Mail, which remained in public hands, imposing higher and higher prices on its dwindling customer base and with its modernisation programme mired in industrial relation problems,’ a spokesman for Customer Focus said

The campaign group, Consumer Focus, has already raised its concerns about Ofcom’ s proposals, which it fears could lead to ‘steep price rises for customers.’

A spokesman said: ‘In the worst case it could result in a financially troubled Royal Mail, which remained in public hands, imposing higher and higher prices on its dwindling customer base and with its modernisation programme mired in industrial relation problems.’

Other responses to Ofcom’s consultation, which were published yesterday, raise major concerns about how small businesses will cope with future price hikes.

Clive Davenport, chairman of the federation’s trade unit, warned: ‘In the worst case scenario, they may be priced out of the market with no suitable postal competitor to switch to.’

The Forum of Private Business said ‘no-limit increases’ in stamp prices will ‘harm’ small business.

Jane Bennett, head of campaigns, said: ‘It would simply create another cost barrier to trading for small firms reliant on postal services who can ill afford further price hikes.

‘We understand that Royal Mail is currently a loss-making organisation and action needs to be taken to address this.

‘But we believe constant price rises are not the way to tackle the issue.’

She added: ‘During the difficult economic climate, we believe it is unjustifiable for Royal Mail to increase its prices by large amounts without check.’

Latest figures show Royal Mail’s UK letters and parcels division lost £41million between March and September last year.

Royal Mail insists it would not raise stamp prices dramatically because such a move would drive away customers, which is the corporate equivalent of shooting itself in the foot.

A spokesman for Ofcom, which is expected to publish its final decision in March, said: ‘Our proposals seek to ensure that UK consumers continue to benefit from the universal one-price-goes-anywhere postal service.

‘We will consider all consultation responses and aim to publish a statement in the spring.’